CRUS, OVTI, BRCM: Street Weighs Risk to AAPL Supply Chain

By Tiernan Ray

The Street this afternoon is weighing the implications for Apple‘s (AAPL) component suppliers in the wake of a warning last night by audio chip maker Cirrus Logic (CRUS) that its fiscal Q4 revenue will come in below consensus, “a decreased forecast for a high volume product as the customer migrates to one of Cirrus Logic’s newer components.”

As vague as those remarks were, the statement is being taken by analysts as a sign of weakness in demand for Apple products that use Cirrus’s chips, including the iPhone and iPad. Apple shares are down $25.94, or almost 6%, at $400.30, and earlier hit their lowest level since December 23rd, at $398.11. Cirrus shares are off $3.35, or 16%, at $18.06.

An example of how analysts have taken the news, Oppenheimer & Co. semiconductor analyst Rick Schafer today reiterates a “Perform” rating on Cirrus stock, writing that “$20.7 million of the inventory reserve [$23.3 million in total] is due to a reduced iPhone 5 forecast.” Schafer notes Cirrus has 91% of its business at Apple.

Schafer believes that Apple “has become increasingly conscoius of supply chain management (re: cost and dual-sourcing).” He also thinks that “a likely introduction of lower cost iPhone is of further concern for CRUS.”

Schafer notes there is also risk to Apple supplier Peregrine Semiconductor (PSMI). Its shares are down 38 cents, or almost 4%, at $9.89. Schafer advises investors to look to chip makers with more diversification among customers, including Broadcom (BRCM), Skyworks Solutions (SWKS), and RF Micro Devices (RFMD).

Needham & Co.’s Quinn Bolton, meanwhile, takes a more aggressively negative view, cutting his estimates for not only PSMI but also for Broadcom, Skyworks, and TriQuint Semiconductor (TQNT).

TriQuint shares are down 18 cents, or almost 4%, at $4.77, while Skyworks shares are off $1.02, or 4.7%, at $20.63, and Broadcom shares are down $1.48, or 4.4%, at $32.49.

Although Apple stock is actually followed by Needham’s Charlie Wolf, Bolton offers up his own reduced forecast for Apple’s products: He now models the company selling 35 million iPhones last quarter, down from a prior 37.5 million estimate, and 25 million iPhones this quarter, down from a prior 35-million-unit estimate. His iPad number is unchanged for last quarter at 20 million units, and his June iPad forecast goes to 18 million units from 25 million previously.

Bolton expresses caution about all four stocks:

As CRUS’ negative pre-announcement indicates, consumer demand for and build rates of Apple’s iPhone and iPad product families have weakened ahead of expected product refreshes in 2H13. Additionally, we believe Apple’s product momentum has slowed as a result of the increasingly competitive smartphone and tablet markets. Given the increased likelihood of reduced sell through of Apple’s iPhone and iPad product lines in the current and forthcoming quarters, we have reduced our earnings estimates for BRCM, PSMI, SWKS and TQNT.Our estimate reductions reflect significant cuts to our iPhone and iPad sell through estimates for the June quarter and moderate cuts to our shipment assumptions beyond June. Given the likelihood that consensus estimates will come down through the 1Q13 earnings season, we are cautious on BRCM, PSMI, SWKS and TQNT ahead of earnings.

Bolton cut his Estimates for Broadcom for last quarter to $1.89 billion and 53 cents per share from a prior $1.9 billion and 54 cents. For Peregrine, his estimate goes to $43 million in revenue and a 7-cent loss from a prior $45 million and a 5-cent loss. For Skyworks, he models $415 million, down from $420 million, while maintaining his 47-cent estimate. For TriQuint, he now models $180 million and a 14-cent loss, down from $188 million and a 12-cent loss.

Update: Raymond James‘s Tavis McCourt also weighed in this afternoon, writing that Cirrus’s outlook is consistent with his expectations for Apple to have sold 36 million units of the iPhone last quarter, and to sell 25 million this quarter. He wonders whether the forecast, however, shouldn’t have been a little higher if Apple were introducing an “iPhone 5S” in July. “Whether this is because they don’t want to tip Apple’s hand, or the 5S launch is later in calendar Q3 is unclear,” he writes, though he’s modeling a late July or early August debut for a 5S.

McCourt’s colleague Hans Mosesmann opines that estimates for camera sensor supplier OmniVision Technologies (OVTI) could be too high. Mosesmann, who rates OVTI shares Overweight, writes “OmniVision’s F4Q13 (April) outlook calling for a 26% sequential decline at the midpoint still appears reasonable in context of the CRUS performance (OVTI is much more diversified), but current July quarter consensus calling for 8% sequential growth may come under pressure as estimates adjust to the timing of Apple product ramps.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.